To restore confidence to the emissions trading markets in the wake of a trading scandal, the European Union has amended rules under its Emissions Trading Scheme to halt the recycling of certified emission credits (CERs).
After it was revealed that the Hungarian government sold 2 million previously used CERs, markets were roiled and trading stopped on two exchanges.
Since the scandal, Hungary and the BlueNext exchange, where the recycled credits were sold, have been working together to identify those CERs and prevent their reentry into the market, according to NASDAQ.
Hungary’s environment minister issued a release stating that it was “likely that an intermediate market player transacted the CERs within the EU ETS knowingly.”
Indeed, without identifying any companies involved, Hungarian Energy Power said the recycled credits in question ended up in the hands of one of the “biggest trading houses” in Europe, after being routed through a London-based trading company, reports Business Week.
The EU has its own type of certified emissions credits, called European Union allowances (EUAs), which it self-regulates. CERs are sold under the mantle of the United Nations, but are acceptable for use under the EU’s Emissions Trading System, so long as they are surrendered for compliance after their first use.
In the case of this scandal, the second-hand credits re-entered the ETS.
In response, the EU closed a loophole that previously had allowed different companies to surrender the same carbon permits for compliance, according to the Interactive Investor.
Starting March 19, the EU said it would suspend the process for surrendering CERs until new rules are applied later this year.
There is one exception, according to LSE – the period from April 19 to May 1.
“‘This allows for an appropriate time period for the surrender of allowances or credits by operators for compliance with 2009 emissions by the 30 April 2010 deadline, while protecting the integrity of the European carbon markets,’ the commission said, in a statement.